Chief Cherokee Nation Chief Chuck Hoskin, Jr. said the U.S. Supreme Court ruling in McGirt v. Oklahoma dramatically increases the number of Native American citizens who can now be exempt from Oklahoma state income tax.
“There is nothing new in the law about a state’s ability to tax a member of a federally recognized tribe on a reserve,” Hoskin said. “What is new of course is the scope of the reservation (because of) the McGirt Case. So we can look at the existing law and we can see that the taxation does not apply to individual Native Americans who live on reserves. “
Hoskin made the comments as part of a panel on state tax and budget issues hosted by the Oklahoma Policy Institute.
The McGirt decision concluded that the Muscogee Nation reserve was never removed. The decision has since been extended to include the Choctaw, Chickasaw, Cherokee, Seminole and Quapaw reserves, a combined area that covers nearly half of Oklahoma. The affected area is home to around 2 million people, 21 percent of whom are believed to be Native Americans.
Members of federally recognized tribes have long been exempt from various forms of state taxation if they live and work on tribal lands. Prior to McGirt, this exemption only covered a small portion of those working in much more geographically restricted areas directly belonging to Oklahoma tribal governments.
But under McGirt most of eastern Oklahoma is now considered reserve land, regardless of current owner, potentially extending the tax exemption to many more people. Hoskin admitted this could lead to “income gaps” for the state government.
Due to potential exemptions for tribal members on reserve lands, the Oklahoma Tax Commission previously found that the McGirt The move could reduce Oklahoma state tax collections by $ 72.7 million per year from reduced income tax collections and $ 132.2 million per year from the reduction. reduced sales / use tax collections.
However, this estimate was based on McGirt applying only to the Muscogee, Choctaw, Chickasaw, Cherokee and Seminole tribes. The Quapaw reservation has since been declared never to have been dissolved, and similar decisions could occur for other tribes who are currently challenging reserve status.
Hoskin said the issue could be resolved through state-tribal agreements, although this process could result in a substantial share of state tax revenue going directly to tribal governments, which would still leave the Oklahoma state government faces a deficit.
“Tax issues have already been raised in the context of Indian tribes,” Hoskin said. “The tobacco tax cases in the 80s and 90s, how were they resolved? They were ultimately resolved through a deal in which we share the revenue.
Under the current tobacco tax agreements signed between the state of Oklahoma and tribal governments, all outlets collect the same tobacco tax. However, the collection of tobacco taxes from tribal outlets is then split between the state of Oklahoma and the participating tribal government. Covenants typically state that tribal governments receive at least half of the tobacco taxes they collect.
Similar compact income tax deals would effectively divert tens of millions of dollars of state government revenue to tribal governments, creating a state deficit that could reduce funding for things like schools, roads and public safety.
Hoskin admitted that McGirt increased litigation and potential tax challenges in Oklahoma.
“We have never seen this before, because McGirt is new, in a sense, ”Hoskin said. “But in another sense, we’ve been down this road before.”
State Senator John Michael Montgomery, who appeared alongside Hoskin on the Oklahoma Policy Institute panel, said the potential loss of state revenue was a major concern for lawmakers. And he warned that the loss of state funding could lead to a decrease in public services in the McGirt Reservations.
“I think we would be interested in how we work with the tribes on these issues and continue to make sure that the state continues to provide services in these areas as well, as this has sometimes been a topic of conversation,” he said. Montgomery said. , R-Lawton. “I think there’s a pretty compelling argument to say, ‘Why do we keep funding things in zones if they won’t pay service taxes for those zones?’ There are challenges like that. “
Montgomery noted that in recent years, lawmakers have capped the amount of itemized deductions Oklahoma residents can claim on their income taxes. Although gambling losses are deductible, they are subject to this limit. But tribal governments that operate casinos have since pushed for gambling losses to be exempt from the deduction cap in order to make their casinos more attractive to big spenders who rack up large losses.
If the state made this change, the Oklahoma government would “bear the cost of tax revenue” to the benefit of entities whose members may no longer pay state income tax due to McGirt.
“There are a host of issues here that are not just tribal-citizen type taxation,” Montgomery said, “but also other things that are outside of that as part of the relationship we have with. our tribes. “